Everything else equal, if a firm shifts its capital structure to include more de

Question

Everything else equal, if a firm shifts its capital structure to include more debt than before the shift, then the firm's business risk should
A. increase because the degree of financial leverage increases.
B. decrease because the degree of operating leverage decreases.
C. not change because capital structure decisions should affect the firm's financial risk, not its business risk.
D. not change because, although additional common stock will increase financial risk, the business risk should decrease by the same amount.
E. increase because the degree of financial leverage increases.

Explanation / Answer

B. decrease because the degree of operating leverage decreases ...

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